Ohio Attorney General Objects To GM Sale: "Franchise Contract Changes Are Unlawful"

Trust GM to try to slide a fast one. In an attempt to get all the dealers who did not receive the "thin letter" to get on board with the restructuring process, the bankrupt automaker had sent to the surviving dealers highly secretive amended Participation Agreements (presented below) with extensive "No Protest" clauses, which would require dealers to stock more inventory, stop selling non-GM vehicles and accept new or relocated GM dealerships nearby without protest. Any disagreement with the Agreement, and the dealer would find himself joining the 1,300 dealers already terminated.

However, if GM was hoping this one would simply slide with nobody noticing, it was quite wrong. On Friday, the Ohio Attorney General joined in the objections of several other state representatives, notably the DOTs for Texas and Nebraska, in claiming that the newly enforced requirements. Ohio's AG Richard Cordray, a Democrat, objected to the 363 sale in that the Participation Agreements "unquestionably violate Ohio law and are completely contrary to the purpose of having state franchise laws." The AG objection notes that Ohio laws prohibit manufacturers from forcing dealers to dump other brands or accept inventory that they did not order: a key stipulation of that any continuing dealers have to agree with. According to Cordray, GM is presenting dealers with an ultimatum: "lose the protections of Ohio law, or lose your business."

And while no rational dealers have a desire to sign this agreement, none have elected to voice their displeasure over it publicly over fears of losing their livelihood.

Additionally, as The Plains Dealer points out, other concerns the AG raised in demanding a delay of the sale include:

• whether GM can dump liabilities under the state's lemon law for bad cars. The state asked for GM to say directly whether it will take lemon law claims into the new company.
  
  
• GM's obligations for extended warranty contracts and the company's possible plans to sell customer data to outside companies.
  
  
• properties GM plans to sell in Ohio. The Ohio Environmental Protection Agency monitors several GM sites for environmental concerns.
  
  
• whether the company that emerges from bankruptcy will be self-insured, like GM, instead of paying into the state's program.
  
  
• GM's request forbidding creditors from withholding payments to GM to offset money the company owes them. The state Department of Taxation wants to hold back tax refunds to offset liabilities.

As Ohio is a major voice in all events automotive, one can only hope Judge Drain has a little more respect for the bankruptcy process than his much more follicularly challenged compadre Gonzalez, who oversaw the joke that was the Chrysler bankruptcy. Zero Hedge is just curious at what point will Tom Lauria emerge on the scene and go for a repeat date with the Supreme Court (which this case seems very much set on repeating).

Representative Participation doc below. Also, here for comparable objection filed by Texas DOT.

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Low Single-Digit Percentage Of GM Bondholders Tender

Developing Story: just a couple of people have tendered for the bonds ahead of today's midnight deadline. Bankruptcy up next.

Good luck shoving that particular 363 down the throats of 90%+ of bondholders. Sphere: Related Content

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GM Liquidates Two Employee Benefit Plans

In an 8-K just released, GM has announced that it has liquidated two key employee benefit plans (the Savings-Stock Purchase Program and the Personal Savings Plan). The plan custodian State Street started selling the plan assets, consisting entirely of GM stock, on March 31 and reinvesting proceeds into fixed-income investments and money market funds. The plan liquidation is permitted if State Street determines one (or both) of the following: "(A) there is a serious question concerning General Motors Corporation’s (“GM” or the “Company”) short–term viability as a going concern without resorting to bankruptcy proceedings; OR (B) there is no possibility in the short-term of recouping any substantial proceeds from the sale of stock in bankruptcy proceedings."

The liquidation is expected to have been completed by the end of business today, which likely explains the 8-K hitting SEC after market close. Looks like yet another slap in the face of GM employees, not to mention a glowing endorsement of the automaker's viability. Sphere: Related Content

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Weekly Macro Observations

David Rosenberg punching the table on the little noticed fact that the Detroit production shutdown will have profound negative ripple effects on the economy. Zero Hedge still believes that fundmantals are more important to report than ongoing wholesale market short squeezes, so we present David Rosenberg's latest weekly observations.

Quicksand

This financial crisis and deep recession has the economic outlook shifting so rapidly that the economic data flow, no matter how timely, is being rendered old news before it is even released. No piece of data exemplifies this more than today’s durable goods report for March. While it was far from a good report, the fact that orders ‘only’ fell by about half of what was expected fed the greenshooters’ case that we are starting to turn the corner. But this info is now stale news given GM’s tape bomb: a complete shutdown of production for the balance of the second quarter.

20% of vehicle production to be shuttered

What this means is the ISM could retest the 32.9 cycle low in May or June, even though the April ISM figure could well move higher when it is reported next Friday. In all, we are expecting vehicle production to be down 45% compared to last year, even factoring in Ford’s news that it would up production by 25%. The GM shutdown does not just mean more layoffs at their assembly plants; it will ripple across the parts industry as well. If parts manufacturers take similar production hits it could reduce motor vehicle payrolls by 140k. Chrysler has not released any new production intentions but with the specter of bankruptcy looming, could trim their 2Q production plans as well.

No confidence in home values

If there was to be a month where home-buying activity was to turn up it should have been March, but instead both new and existing home sales dropped. Rates were an enticing and record low of 4.77% for a 30-year fixed mortgage, points and fees stayed low, and the stock market jump had pundits believing it was clear sailing from here on. However, these signs of thaw in credit conditions proved no match for the 5-million-plus jobs lost in the past year and counting, massive wealth destruction and the concern that residential real estate will not provide a decent investment return any time soon.

Doing time

Continuing unemployment claims jumped another 93k in the April 11 week and are up 570k since the mid-March survey week. Even with this record number of people on UI, the exhaustion rate (workers whose regular UI benefits have run out) rose to a record high of 45.6% in March.

The 9% marker…

Come May 8th, the US economy will have the dubious honor of boasting a 9% unemployment rate, according to the tally of jobless claims so far in April. Another 670,000 nonfarm payroll losses are in store, which will bring the cumulative losses close to 6 million. We expect these types of major job cuts to continue for at least the next several months and the unemployment rate will attain a doubledigit handle by June or July.




…and on to 10%

Though this is not a controversial call at this time, where we differ from consensus is our expectation of a sluggish pace of economic activity that will restrain job creation. Given that by our estimate the economy needs to create more than 100k jobs per month on a sustained basis to move the unemployment rate lower, we expect the unemployment rate will remain at a deflationary double digit level though to the end of 2010.

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